The differences between an independent contractor and an employee are typically related to the level of control that an employer has over their staff member, the method of compensation, the nature of the role, and how integral the role is to the business. Other criteria may include who provides the necessary work materials including computers and equipment, and the length of the employment contract. Independent contractors are typically not on an employer’s payroll. They may be responsible for supplying their own business materials, have greater control over their work hours, and they may be discharged by the employer at any time. An independent contractor may also receive a large portion of their annual income from other contracts. In contrast, an employee relies solely on payment from one employer and is on the organization’s payroll. At the time of employment they are often secured on a long term contract with clear guidelines regarding termination. Employees may have less freedom to work within the role than an independent contractor, and they are often eligible for health care and other employment related benefits. For organizations that wish to maintain a greater level of control over their staff, including the work that they carry out, hiring staff as employees, administering a W2, and including them on the payroll is important. To hire an independent contractor, a 1099 is issued and it is the employee’s responsibility for withholding and paying payroll taxes.
The IRs and State Tax Agencies provide comprehensive guidelines for companies wishing to identify which role their staff members falls into and which tax responsibilities the organization should follow. The IRS also offers an online determination and assessment tool which employers can use if they are unsure as to which classification their worker falls under. These guidelines help you to assess staff over specific criteria, including number of hours worked, whether worked is carried out on the companies’ premises, issues surrounding a employer’s right to fire, and an employee’s right to quit.
Organizations wishing to gain more information and receive support in helping to identify the classification of their workers, can also submit a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.